Kohn v. Myers
| Decision Date | 07 May 1959 |
| Docket Number | No. 115,Docket 25229.,115 |
| Citation | 266 F.2d 353 |
| Parties | Henry KOHN, as Trustee in Bankruptcy, Petitioner-Appellee, v. Allen Murray MYERS and Teleprompter Corporation, Respondents-Appellants. |
| Court | U.S. Court of Appeals — Second Circuit |
Allen Murray Myers, New York City (Henry & Myers, New York City, on the brief), for respondents-appellants.
J. Nathan Helfat, New York City (Bernard A. Helfat and Helfat & Helfat, New York City, on the brief), for petitioner-appellee.
Before MEDINA, LUMBARD and BURGER*, Circuit Judges.
Allen M. Myers and Teleprompter Corporation appeal from Judge Dimock's affirmance of an order of the referee in bankruptcy directing that they turn over to the trustee accounts receivable having a total face value aggregating $16,987.57, transferred to Myers by the bankrupt for $16,817.49, after the filing of an involuntary petition in bankruptcy. The two principal questions for decision are: (1) whether the appellants can resist the turn-over on the ground that they acted in good faith in purchasing the accounts with knowledge that a petition had been filed, despite 11 U.S.C.A. § 110, sub. d(3) which provides that "A person having actual knowledge of such pending bankruptcy shall be deemed not to act in good faith," and (2) whether the bankruptcy referee had summary jurisdiction. We agree with Judge Dimock's conclusions and affirm his order.
Our consideration of these questions must start with a statement of the events surrounding the bankruptcy proceeding and the purchase of the accounts.
On September 5, 1956 three creditors with claims aggregating $10,000 filed an involuntary petition against Autocue Sales & Distributing Corp. alleging as acts of bankruptcy certain fraudulent transfers, concealments and preferences. Autocue was in the business of providing cueing and prompting devices for TV shows and motion picture productions. Teleprompter was its principal competitor. Teleprompter retained Myers, an attorney, to follow this proceeding and all steps in it. Thereafter an amended petition and a second and final amended petition were filed on October 10 and November 29, 1956. The transfers here at issue were all made thereafter on November 30, December 3 and 7, 1956. The adjudication was entered on December 10. Myers paid $16,817.94 to the bankrupt for accounts receivable having a total face value of $16,987.57, of which the appellants have collected only $7,190.50. The money which appellants paid for the accounts appears to have been used immediately to discharge obligations of the bankrupt for federal taxes and wages.
The power of the bankruptcy court to pass summarily on the trustee's claim is clear. The bankruptcy court has summary power over property in the actual or constructive possession of the bankrupt at the time the petition is filed. Board of Trade of City of Chicago v. Johnson, 1924, 264 U.S. 1, 44 S.Ct. 232, 68 L.Ed. 533; Taubel-Scott-Kitzmiller Co. v. Fox, 1924, 264 U.S. 426, 432-433, 44 S.Ct. 396, 68 L.Ed. 770; Bank of California National Association v. McBride, 9 Cir., 1943, 132 F.2d 769; MacLachlan, Bankruptcy (1956), pp. 206, 346; cf. Solomon v. Allied Building Credits, Inc., 8 Cir., 1954, 209 F.2d 828. Since the bankrupt was the legal owner of the choses-in-action up to the time of the filing of the petition, the bankrupt had sufficient "possession" of the choses-in-action to support the district court's summary jurisdiction. In re Worrall, 2 Cir., 1935, 79 F.2d 88, 90; In re Borok, 2 Cir., 1931, 50 F.2d 75.
Appellants concede that the general rule is that actual or constructive possession of property by the bankrupt at the time the petition is filed will support the exercise of summary jurisdiction but they maintain that an exception exists for post-bankruptcy transactions protected by § 110, sub. d, citing 4 Collier, Bankruptcy, Paragraph 70.68, p. 1337 (14 Ed.1942) and MacLachlan, Bankruptcy, § 194, p. 206 (1956). We reject this contention. Bank of California National Association v. McBride, supra at page 772, of 132 F.2d. No reason is offered for such an exception either by appellants or by their cited sources.
As pointed out by Judge Dimock, the cases cited by Collier either do not support the asserted contention or as based on an outmoded concept as to the time the trustee's title becomes effective. Collier cites In re Zotti, 2 Cir., 1911, 186 F. 84, certiorari denied 223 U.S. 718, 32 S.Ct. 522, 56 L.Ed. 628; In re Laplume Condensed Milk Co., D.C.M.D.Pa.1906, 145 F. 1013; In re Retail Stores Delivery Corp., D.C.S.D.N.Y.1935, 11 F.Supp. 658; In re Ferrell, D.C.S.D.Fla.1932, 2 F. Supp. 348. None of these cases adequately support the cited proposition. Both the Zotti and Laplume cases rested on the now discarded view that the trustee was not vested with title until adjudication and that the court therefore lacks summary power over transfers prior to adjudication. However, it is now firmly established that the trustee's title and possession relate back to the date of petition. Bankruptcy Act, 11 U.S.C.A. § 110, sub. a; Everett v. Judson, 1913, 228 U.S. 474, 478-479, 33 S.Ct. 568, 57 L.Ed. 927; In re Worrall, supra at page 90, of 79 F.2d.
Moreover, MacLachlan's comment on the subject has been misconstrued by appellants as is indicated by MacLachlan's subsequent analysis which is clearly contrary to appellants' interpretation. MacLachlan, Bankruptcy, supra, § 293, p. 346 (1956). Furthermore, other commentators on the subject have been markedly silent on the existence of such an exception. See Remington, Bankruptcy, §§ 1381-1411, and Chapter XXXVI (Rev.Ed.1957); Ross, Federal Jurisdiction in Suits by Trustees in Bankruptcy, 20 Iowa L.Rev. 565, 583-92 (1935); Note, 39 Ill.L.Rev. 174 (1944).
The principal contention of the appellants centers around the question of whether after a petition in bankruptcy has been filed any one who knows this can validly purchase any property of the bankrupt for a fair and adequate consideration. Judge Dimock held that on the facts of this case § 110, sub. d rendered the transfer invalid as against the trustee because of the categorical provision that a person having actual knowledge of the pending bankruptcy "shall be deemed not to act in good faith."
Section 70 of the Bankruptcy Act, 11 U.S.C.A. § 110, provides in effect that after the bankruptcy petition has been filed the only transfers which are valid against the trustee are those where the persons involved do not know of the filing of the petition, except where it can be shown that there was reasonable cause to believe that the petition is not well founded. This much seems clear from 11 U.S.C.A. § 110, sub. d(3) when read in conjunction with subparagraphs (1) and (5), here set forth:
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